To Walk or Not To Walk: Underwater Homeowner’s dilemma

House owners around the United States are struggling with a mortgage entered into with the hope that the housing boom of 2001 to 2005 would continue to drive up prices. Reality is very different. The "subprime" lending practices by mortgage companies and banks launched a wave of foreclosures in recent years. The tide of foreclosure rates has not yet been stopped. Confusion over regulation oversight of the "subprime" derivatives only exacerbated the problem and raises concerns that government officials are asleep at the switch. As the boom in "subprime" lending took off, some in Congress were voicing concern of the practices and financial stability of Freddie Mac and Fanny Mae. The true nature of Freddie and Fanny were blinded by the increase of home ownership among the low and middle class voting pool. Several prominent liberal leaders in Congress, namely Rep. Frank (D-Ma), promoted the idea that solvency of Freddie and Fanny is rock solid.

Over the past two years the reality of Freddie and Fanny solvency is contrary as the Federal Government had to bailout the program and recues the banking industry to a perceived financial meltdown. Why are these politicians allowed to stay in their seats? Why is there not more outrage from the constituents? Now many Americans are realizing that they are upside down on the mortgages and scrambling to balance mortgage payments with job loss and general downturn in the Economy. Brent White, law professor at the University of Arizona, has written a paper, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis", states that "Homeowners should be walking away in droves, but they aren't. And it's not because the financial costs of foreclosure outweigh the benefits."

White asserts that homeowners are not walking away because of the moral obligation one has. I agree with White that many see a stigma behind a bankruptcy or a foreclosure but one of the most successful businessmen in the United States, Donald Trump, and uses bankruptcy like the normal citizen uses their credit or debit card. Then again, what signal or example does a responsible parent give to their offspring by folding up the tents? A program currently exists that is attempting to encourage mortgage companies to assist borrowers to refinance their current mortgages. The $75 billion Treasury program allots $1,000 initially to Mortgage Company then an additional $1,000 annually for the next three years. The program was a result of the $700 billion financial bailout program.

Today, President Obama is expected to announce expansion of this program that would include delaying payment until the loan modifications are made permanent. Once again the public is turning to Government for the answer. While a select number of mortgage companies participated in predatory lending practice the vast majority of homeowners were fully aware of the contract being entered into or at least should have been. Forget the moral dilemma of walking away for a moment and imagine what our economy will look like if just 15% of homeowners walked away. The taxpayer that did not get themselves upside down or buy the big house will be on the hook.

That being said, let's return to the moral dilemma of walking away. Is the stigma of a foreclosure the motivating factor why homeowners are not walking away from their homes? What lessons are parents who walk or don't walk displaying for their children?

Rep. Frank at it again....

Here we go again. Rep. Barney Frank (D-MA) is at it again. This time Rep. Frank is asking Fannie Mae and Freddie Mac to “make appropriate adjustments” in regard to mortgage guarantee’s for condos. Currently, Freddie Mac and Fannie Mae are “no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold” according to a Reuters report (Fannie, Freddie asked to relax condo loan rules: report) Reuters also reports, in the same article, that “Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units.”

The Wall Street Journal in an article Barney the Underwriter echoes Reuters report with “After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development.” Does this make sense? Isn’t this how America got into a recession? Can America afford a second housing bubble as many predict is about to occur?

If America cannot then why in the world do we want to lax lending practices anywhere? Common sense and learning from history is not taking place here. Rep. Frank does wield a lot of power in Washington evident by his ability to take a parts dealership off the chopping block, when GM and Chrysler were deciding to scale back operations, in his home district.

Rep. Frank was on O’Reilly Factor last night. Last time Rep. Frank showed up on O’Reilly Factor the conversation ended in a shouting match and didn’t accomplish much. While they talked on an array of topics with one of them being Rep. Frank’s request to lax lending practices. O’Reilly challenged Rep. Frank to defend the Wall Street Journal report that he is looking to lax rules on condo mortgages. Rep. Frank response was, “with the condiminiums we are not talking about sub-prime or poor people. We do have this problem in cities with vacant properties causing serious problems to the cities. What I want is to say his heres the rule, they have a rule that they will not finance a condiminium unless 70 percent of the units in the building is already sold; I am not talking at all if that borrower can pay for them. They should not allow any borrower who cannot pay for it to do it. But I think they have a fisious cycle. If you won’t fund anybody until its 70 percent it will never by 70 percent and you have a serious problem with cities and vacant properties.” Rep. Frank also claimed that he “was opposed to the sub-prime mortgages”.

Really, that is why in 2000 Rep. Frank quipped, in response to a report that Freddie and Fannie may be insolvent because of the guaranteed sub-prime loans, “no federal liability there whatsoever.” Than in 2003 when President Bush pushed for reform after Fannie and Freddie inflated earnings report by $10.6B, Rep. Frank quipped, “Fannie Mae and Freddie Mac are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Now that brings us back to the topic at hand. Rep. Frank feels, as he said on the O’Reilly Factor, that unless something is done to assist condominium developments with less than 70 percent units sold we will “have serious problems with cities and vacant properties.” Perhaps it’s the current housing market that has seen an increase in the number of homes for sale. According to Realestateabc.com, the inventory of homes on the market “rose to 3.97million units, an 8.8 percent increase from the 3.737 million in March.” That being said, if not offering lower rates (subprime) how else does Rep. Frank see condiminium developers filling the remaining 30 + percent vacancy rate that Freddie and Fannie are refusing to offer loans to?

Economic woe root cause: Socialism

The following words of mine were published in the Star Tribune on 11-28-08.

So the Federal Reserve is going take over debt from the failed dealings of Fannie Mae and Freddie Mac all in an effort to ensure economic stability. The approach is suppose to help "Main Street" as well because it will allow the credit card companies and banks to free up cash to make loans at low-interest rates and increase one's line of credit. Is this not how America started down the road to economic ruin? What types of controls are being placed on lending institutions to ensure another collapse does not occur in five or 10 years?
Owning a home is not a right that all Americans are guaranteed. The direction the Democratic Party has America going is right behind the changes that took place in the final days of Rome. Congress wisely asked the Big Three for a recovery plan before it will give any bailout, or rather, loan. Why is Congress not doing the same for the financial realm? Could it be because leading Democrats are in bed with those who benefit from the bailout? Yes!
Sen. Barack Obama is going to bring "change" to America; the "change" will be in the form of a penny that used to be a $20 bill.

http://www.startribune.com/opinion/letters/35267544.html?page=3&c=y

The same people that are trying to fix our Economy are the same that felt Freddie Mac and Fannie Mae were solvent. President Obama’s administration is using Socialism to right the ship instead of identifying the root cause for America’s economical woes. America’s economical woes root cause is the Socialistic view that everyone has the right to own a home. Simply put, it is not a right to own a home.

Government backed Freddie Mac and Fannie Mae mortgage programs enabled the financial industry to package the “toxic” asset trade by guaranteeing mortgages. Armed with the backing of the Federal Government, mortgage companies proceeded to push the socialistic ideal of homeownership through ARM’s, interest only, and no money down loans.

In 2002 a number of concerned legislators warned the Judiciary Committee about the future insolvency of Freddie Mac and Fannie Mae. The warnings fell on deaf ears as Democrat Barney Frank stated over and over that nothing in the balance sheet or any projections supported the charge of insolvency. Why might this be?

Had Barney Frank heeded the warnings it would have meant a halt, most likely temporary, to the Democrats Socialistic agenda. Thus turning the average citizen into hedge fund managers as many that entered into mortgages they knew was going to break them in three or four years. Instead of holding homeowners accountable for their actions and the Government crafted the notion of predatory lending.

The topic of predatory lending opened the door for Socialism to thrive through a collapsing American economy and the partial nationalization of the financial industry. The House of Representatives even treaded on the U.S. Constitution by passing a bill of attainder to recoup bonuses paid to executives of TARP fund recipients. Now Secretary Geitner is asking for Congress to expand his powers to control of potentially failing companies that are vital to our economy. Barney Frank has proposed a bill that will allow the Government to establish wages for companies that take bailout money. The kicker to Barney Frank’s bill is that it will allow it to be retroactive.

On the surface the additional powers may make sense for those accepting money from the Government but that is only being short sighted. The shell game is Democrats attempt to entrench Socialism while removing Capitalism. Government has failed us by not identifying the root causes and using Socialism to attempt to right the ship. When will America wake up and realize that our freedoms are being stripped away?